The Emperor’s New Clothes: why Old Firms Fail

A quick search online reveals that half of the Fortune 500 firms of the year 2000, have by now ceased to exist, either because they have been merged with other firms, or because they have gone bankrupt. Look at the really long term, say 60 years back, and only one in ten firms are still on that list. What’s going on?

If big businesses are those that benefit from advantages like economies of scale, strong capabilities, high R&D capacity, and advantaged access to investors, politicians, and other actors, then why do so many big businesses fail to survive over the long term? A lot has been written about this theme, and one explanation may be that such firms find it difficult to innovate – not in the sense of coming up with new products, but in the sense of coming up with the next “big thing”.

Managing New Business Models in Old Companies
In our recent MIT Sloan Management Review article we discuss some of the things managers need to look out for when trying to launch new business models in old companies. Our research points to three key areas of tension almost any existing business will face if it attempts to discover entirely new business models. Whether management succeeds in handling those tensions will determine their success in identifying and implementing new business models.

1.  Don’t settle too quickly on structure. Experimenting with the right structure to accomodate both old and new business models is an important dimension of business model innovation.

2. Balance top management support and experimentation. On the one hand, developing new business models will only be successful if the initiative is supported by top management. For example, such new business models may take time to become profitable. On the other hand, top management need to let people involved engage with the necessary experimentation, and not try to control or limit creativity.

3. Expect a power struggle for resources. A tension is bound to emerge concerning how many resources to devote to the old core business, and to the new emerging one.

As we note in the article: “The tensions we highlight imply that the design of an organizational structure that accommodates both new and older business models needs to be considered an intricate part of business model innovation. Organizational design has to be questioned and experimented with as part of the exploration. A top management team that is prepared for such exploration and aware of the organizational dimension of business model exploration may well be more likely to succeed at business model innovation.

To cite: 

Sund, K. J., Bogers, M., Villarroel, J. A., & Foss, N. (2016). Managing tensions between new and existing business models. MIT Sloan Management Review, 57(4), 8.

Why are Students Not Attending Class?

A big challenge for universities in many parts of the world is rampant absenteeism. Studies have reported that many students choose not to attend lectures, seemingly prefering self-study, and prioritizing other activities. Yet, universities invest enormous ressources in teaching facilities, materials, and staff. In order to optimize these investments we need to understand more about student behaviours.

In 2009, I moved to the United Kingdom to work at a London-based university, and the first thing that struck me was the high level of absenteeism among students. On a good day, less than half the students (in a class of over 200) were present at my lectures, and on a bad day this could drop to less than 1 in 3. Until then I had mainly taught MBA students and smaller classes in Switzerland, and typically well over 80% of students would be present at any given lecture. So why did students not attend class in London? This became the topic of an exploratory aurvey I administered to students, the results of which have just appeared in the book Innovative Management Education Pedagogies for Preparing Next-Generation Leaders“. Four key conclusions can be made from the results, which I outline below.

Perceptions Drive Behaviour

Students who perceived attendance as more important also reported higher levels of attendance. This would suggest that attending lectures is a conscious decision, driven by perceptions. Worryingly, 35% of students responded that attending class is at most somewhat important, and 11% even responded that attendance is very unimportant. When students don’t understand the benefits of class attendance, or the risks of non-attendance, they will adjust their behaviour accordingly. If universities believe that classroom activities are important for learning and achievement, the challenge then becomes to convince students that this is the case. As one student told me: “We learn what it takes in the first semester, and behave accordingly for the rest of our studies.

Some Students View Online Materials as a Substitute for Class

Today all universities use a virtual learning environment (VLE) – such as Moodle or Blackboard – to assist in teaching. Lecturers typically deposit materials, such as slides or articles on the platform, and some will go as far as posting actual lectures, videos, quizes or other materials on there. These are rarely meant to replace classroom activities. They are more commonly meant as a complement. However, in my survey, 1 in 3 students (32%) declared that they view online slides as a substitute to the classroom. This is worrying because they were not designed to be. If this is a general trend, it indicates a need for universities to educate students on the purpose and limits of the VLE.


Reasons for Non-Attendance are Eclectic… to Say the Least!

When asked for reasons why they skipped lectures, students came up with a long list of reasons, including traffic, illness, being tired, not liking the tutor, family issues, not being prepared for class, and so forth. However, the most common reason for non-attendance was declared to be pressure from competing learning tasks. In particular, 65% of respondents said they had skipped lectures due to coursework deadlines. Over-all the picture is one of students constantly adjusting their attendance behaviour to the needs and emotions of the moment. Students juggle between work, study, and social engagements, and make last-minute decisions regarding their participation in classroom activities.


What Can Universities do to Increase Attendance?
Interestingly, 59% of respondents indicated that there are things universities and lecturers can do to improve attendance levels. Not surprisingly (in view of answers to the question of reasons for non-attendance), suggestions given by students were varied, reflecting differences in their perceptions and behaviours. Suggestions included allowing more flexibility in choosing what lecture and seminar times to attend, and improving the quality of lectures both in terms of making them more interesting, interactive, and applied. Surprisingly, many students suggested reward and punishment schemes as a solution to raising attendance levels. Suggestions included giving marks for attendance. One student wrote: “For those students who miss one seminar or walk in late to write up 1000 words on the topic covered for that week.” Another even suggested a cash compensation: “Give a bursary or some kind of bonus and also some percentage of the final grade could be attributed to attendance.


It seems unlikely that universities will start paying students to attend class, but if classroom activities are designed to arm students with the necessary skills and knowledge to succeed in professional life, universities need to pay attention to the problem of abseenteism. After all, how can we be sure our students have actually learned anything if we have never even seen them. Is it enough that they’ve passed the exam?



To reference the original research article:

Sund, KJ 2016, ‘Attendance, Employability, Student Performance and Electronic Course Materials: an Exploration and Discussion‘. in SR Tiwari & L Nafees (eds), Innovative Management Education Pedagogies for Preparing Next-Generation Leaders. IGI global, Hershey PA, pp. 108-118.



Is the Brexit Hurting Yet?

How much has the Brexit cost the UK so far? Here are some quick facts:

BUSINESSES
It’s too early to tell how UK businesses are being affected in real terms. However, business sentiment (a measure of how optimistic business leaders are) has dropped to a five year low.

HOUSE PRICES
Again it’s early days. House prices were going up before the vote. Rightmove has just reported the price of property coming to market has fallen 0.9% this past month, but it’s too early to conclude anything firm. HOWEVER, as the pound has now stabilized at a level against the euro that is 7-8% lower, and against the dollar that is around 12% lower, all assets in the UK have basically dropped in value compared to other countries.

STOCK MARKET
The FTSE (an index of large UK stocks) has recovered the initial losses and trades higher now than before the vote. HOWEVER, this is an index, and measured in Euro, due to the devaluation of the pound, the value of the underlying stocks is down about 5%. By comparison, the Euro Stoxx 50 (a comparable index of large European stocks) is now up 10% since the vote. So compared to their European counterparts, large UK stocks have lost around 15% of their value. This of course affects people’s savings and pension funds.

BUYING POWER
Over-all, as UK holiday makers have probably realized this summer, UK citizens have become poorer in foreign currencies even before the exit button has been pushed by politicians. For now consumers feel it when they look at what they can buy abroad, but the June consumer price index was up 0.5% – and it remains to be seen if this is a trend reversal. My prediction is yes. We are still far from the levels of inflation we saw just a couple of years back, but as UK supermarkets find that everything they buy from abroad has become more expensive (for example, anything bought in US dollars is now up 12%), chances are they will pass the cost on to consumers, whose buying power will be affected. But again, it’s early days yet.
So what do we conclude? Some dark clouds are appearing, but it’s probably too early to predict rain. Politicians and voters in other European countries – watch this space carefully!